I think the problem with setting it on earth is that it undermines the threat posed by the Xenomorph and of course, Ripley's actions in later films. I mean we got two AVP films set on earth and both had infestations out of the Predator's control, yet earth was not overrun because the infestations were easily contained. It kind of makes Ripley come off as paranoid and overzealous. Though to be fair, paranoia would be a realistic state of mind after encountering such creatures, mental trauma can be far worse than what caused it in the first place.
Still, I would prefer the avp films to be set on another planet. I mean the first film for instance wasn't that bad, it was not a great film but it had the chance to be one if properly executed. If that film was set on an ice planet (or even a desert one since it would be more in line of how predators hunt ) and had better character development, R-rating and less artistic license on Mayans etc. then it could have been a fairly good movie.
To answer the question, I think budget was a factor, I think I remember it being said that "space was too expensive"..